A Medical Device Daily

Tenet reported that it has entered into a civil settlement with the Securities and Exchange Commission and has agreed to make a payment of $10 million. Tenet said that the payment concludes the SEC's investigation concerning its disclosures regarding Medicare outlier payments prior to November 2002 and the appropriateness of certain managed care contractual reserves.

The SEC said it will seek to deposit the $10-million penalty into a "fair fund" to be distributed to eligible individuals and entities that demonstrate losses related to the value of their Tenet shares purchased or sold between April 12 and Nov. 7, 2002.

The company previously reported that it had established a 4Q reserve of $10 million to cover any settlement.

Additionally, the SEC named as defendants four former officers of Tenet: Thomas Mackey, former COO; David Dennis, former CFO; Christi Sulzbach, former general counsel; and Raymond Mathiasen, former chief accounting officer.

The SEC charged that these four failed to disclose to investors that Tenet's strong earnings growth from 1999 to 2002 was driven largely by "exploitation" of a loophole in the Medicare reimbursement system. Once Tenet finally revealed its scheme and publicly acknowledged that this strategy was not sustainable, the value of Tenet's stock plunged by more than $11 billion.

The SEC said that two of the four former officers have agreed to civil settlements to resolve the allegations without admitting or denying them. Mathiasen will pay a penalty of $240,000, is enjoined from future violations and is barred from serving as an officer/director of a public company for five years. Dennis will pay $150,000.

The SEC said the cases against Mackey and Sulzbach are pending.

The complaint alleges that Tenet, with Mathiasen's approval, created general reserves totaling about $107 million by the end of Tenet's FY02, saying these reserves were inappropriate and so resulted in misstatements in the company's FY00-FY04 financial reports.

Tenet neither admitted nor denied the allegations of the complaint.

In its statement yesterday, Tenet emphasized having a "new management and a virtually new board" since 2003 and the placement of new financial safeguards and governance.

"With this SEC settlement, we have now concluded all the investigations and litigation that arose after the outlier and other matters first surfaced in late October 2002," said Peter Urbanowicz, Tenet general counsel. "We are proud of the progress we have made in our commitment to quality care for our patients and transparency in all our operations."

The SEC in early 2003 began its investigation of Tenet's outlier payments, which are paid to hospitals to cover the cost of providing care to the sickest Medicare patients. Tenet reported in April 2005 that it had received a Wells Notice, indicating that the SEC staff had decided to recommend enforcement action.

The settlement also concludes a separate SEC investigation into Tenet's accounting treatment of certain managed care contractual reserves taken at three hospitals in California before 2003.

In January 2006, the company concluded its own special internal investigation of these contractual reserves by restating certain of its financial results for prior fiscal years.

Tenet, through its subsidiaries, owns and operates acute care hospitals and related health care services.